Retirement age to go

Ministers are braced for a furious backlash from business leaders after deciding to abolish compulsory retirement ages.

The Government is set to announce before Christmas that it will legislate to scrap the current default retirement age of 65 in employment contracts, Personnel Today can confirm. The decision follows a European Union ruling against age discrimination.

Alan Johnson, the pensions minister, has persuaded Patricia Hewitt, the trade and industry secretary, that if it is wrong to sack someone on the grounds of race, religion or sexual orientation, then pensioning off older workers must also be made illegal.

The disclosure comes in a leaked letter, dated 19 November, which has been circulated to cabinet ministers. Privately, ministers expect a fierce response from business, with the Confederation of British Industry (CBI) leading the charge. It claims that the radical change will mean employers will find it virtually impossible to get rid of older workers who want to work past 65 ‘until they drop’.

One consolation for employers is that Johnson and Hewitt have decided to delay implementing some parts of the age discrimination legislation – which the European Commission ruled must be in place by October 2006 – for five years, so that the change will not come into force until 2011. In the meantime, the default retirement age will be changed to 65 years of age for both men and women.

But ministers still fear the proposals may be ruled illegal by Brussels and could bring them into conflict with Peter Mandelson, the former cabinet minister and now EU trade commissioner.

The move will not affect entitlement to the basic state pension, which will remain payable from the age of 65.

The CBI has argued that the retirement age should stay at 65, fearing a swathe of older employees claiming the right to stay on. Hewitt was initially sympathetic to employers, believing that raising the age to 70 might be a compromise. But she was won over by Johnson in a meeting last month.

Ministers had to take the decision after a government-backed taskforce of business leaders, union officials and age lobbyists failed to reach an agreement. A report from the group, chaired by Rita Donaghy of the Acas conciliation service, and including Adair Turner, author of a key government report on pensions, drew no firm conclusions.

This will bring the UK into line with the US, which scrapped the retirement age in 1986, and also most of the EU, which is also being forced to make the change.

David Cracknell is the political editor of The Sunday Times and writes regularly on political issues for Personnel Today